SOARING Real Estate Market – Naples Florida Weekly

The unfolding 2024 market for both commercial and residential real estate on the southwest coast — for land development, and single- and multi-family home construction along with affordable housing — got a significant thumbs-up projection last week from three veteran analysts at the annual Market Trends soiree for professionals, hosted by LSI Companies in the cavernous riverfront hall of the Caloosa Sound Convention Center in downtown Fort Myers.

In a region hit not just by COVID in 2020 but by Hurricane Ian in 2022, where permitting last year was down in two counties, Collier and Charlotte, but up in Lee, development is likely to be robust for some and sustainable for all going forward, predicted Justin Thibaut, president and CEO of LSI, a land, new home sales and development expert.

That could be especially true for developers, home builders and commercial or industrial real estate investors who pay attention to “local metrics” more than national trends, and don’t wait for extraordinarily discounted deals, he added.

Several market characteristics in Southwest Florida are unique to the region, and that will likely change the arc of the development market here. The market might also be influenced by national factors, such as the federal government’s lowering of interest rates.

Among the issues, the experts say:

¦ The new Live Local Act passed by the legislature, which paves the way for developers across the state to receive tax breaks, avoids some local zoning regulations for density, and adds incentive government money if they build affordable housing, creating a permitting path that’s administrative, not subject to public votes — and thus faster and less costly.

¦ The current court fight over Section 404 of the federal Clean Water Act. For many years 404 required a federal permit before any developer could dredge or pour fill in waters of the United States.

With an addendum to that Act, 404(g), the U.S. Environmental Protection Agency gave both states and Native American tribes the right to control that permitting, rather than the federal government. In Southwest Florida, where local elected leaders have been strongly pro-development, that appeared likely to open the door to broader development activity. A number of developers stepped through it with new plans and projects, supported by elected officials.

Several politicians stood to take a round of applause at the event. “We couldn’t do this without you,” Thibaut told them.

But 404(g) was challenged in court by environmental advocates and halted by a judge. Although that decision is under appeal, it put a number of projects on hold, “and we’ll just have to see what happens, hopefully under a different judge,” Thibaut said.

He was joined by Denny Grimes, president of Denny Grimes & Team at Keller-Williams Realty, a residential real estate expert, and Matt Simmons, managing partner of Maxwell, Hendry and Simmons, a commercial real estate expert.

For real estate developers of any kind, “This will be a year of education — of answers,” Thibaut predicted to the packed house, where a Master of Ceremonies estimated 1,200 had gathered.

They wanted to know, and they came to learn.

The data-rich presentation, provided in an elaborately detailed booklet from LSI Companies, will be available to the public later this week at www.MarketTrend- SWFL.com.

It includes everything from population and employment rates to airport traffic numbers, to costs of diesel fuel, aluminum, copper and brass mill shapes, steel mill products, lumber and concrete. It also includes, for example, average housing costs in counties and cities and the number of residential permits in the three counties issued for single-family detached and multi-family housing.

Among the many communities that participated in growth last year, for single family detached homes, Babcock Ranch had 773 permits in Charlotte and Lee, and Ave Maria had 399 in Collier, to rank one and two by communities.

But Ave Maria and Babcock tied in most permits for multi-family housing, with 280 each. In the three counties, 30 builders were ranked for participation.

“I think a lot of the metrics — what the feds are going to do (with interest rates and with control of development in wetlands), the availability and cost of materials, what will happen with rent and sales prices, with sales of new homes, who the president is going to be (and how that will affect the economy) — all these things are going to have light shed on them this year,” Thibaut said.

“They were questions without answers in 2023. But in 2024 we will get answers.”

Advice for buyers and sellers

Denny Grimes, with 40 years in the business and 40 years hearing people periodically claim there were no buyers in a difficult market, offered the wisdom of long experience, in residential or commercial real estate as the market levels out and steadies.

“There’s never a shortage of buyers in any market. If sales are down, it’s because there’s a shortage of realistic sellers, not buyers,” he said.

For home sellers now, Grimes warned not to expect to benefit from the once-in-a-lifetime massive jumps in list prices that occurred starting a few months after the arrival of COVID, when so many people moved to Florida to escape other parts of the country. Prices shot up as availability dropped, workers and materials became hard to find, and the market seemed to have put the seller in charge.

But for sellers, waiting for prices to rise again, even as interest rates drop and the cost of money grows cheaper, “is like keeping your size 32-waist trousers in the closet because you think you’re going to get back into them again.” Grimes suggested.

“The most crowded state in the nation,” he added, “is the state of denial.”

Thus, while the market appears to have regained the rational stability of the pre-COVID 2019 market once again, now may be a good time to buy or sell — without being greedy in expectation.

“My advice to buyers: If things start moving in their favor, if prices get softer, the national reaction is for the same vice to kick in — buyers were buying because of greed, and now buyers will wait like crazy because of greed, thinking it will go up,” he explained.

Probably not a good idea.

“For sellers, most people want to have a conversation around money, but there’s another ‘M’ word. Motivation. So, if you want to sell your house and move closer to grandkids, is it really a money issue?”

“So my advice for sellers is to consider this question: What’s the alternative to selling now? Wait for houses to come up in value again? But when will that be?”

Matt Simmons pointed first to the big picture. “We’re in a different place than we have been for the last 10 or 12 years. We have to be realistic. The reality is, a long bull run desensitizes you to the realities of risk.”

The message of all three presenters here is: You have to ignore big national trends — changes in pricing or lease rates or national, regional or even state factors.

Know them, be aware of them, he says, but don’t apply them to the southern Gulf Coast.

“What matters instead, specifically for the asset class, is what’s changing locally.”

In commercial real estate now, “our vacancies are really low — for office, retail and industrial,” Simmons explained.

“And the interest rate impacts are there. So: If you’re looking for space, don’t expect a discount.

There was a shift in the mid- to late 2000s. We overbuilt a lot of commercial asset classes.”

In some cases, they sat for years.

“Now, for example, industrial parks exploding with growth were just sitting there in 2008. It took until the mid teens for it to get started again.”

“And now, if you’re buying commercial, you can get a discount — from 2022. From the Fed, we’ve peaked, and now that’s kickstarting projects.”

The future is rising again, suddenly, he suggests.

“There was one million square feet with permits issued in Lee County alone for just industrial use, in December of 2023. So a lot of new space is coming.”

His caveat: “When you have population growth and you’re leading the country in job creation, it can lull us into complacency.”

If the spigot turns off, he said, the economy of the region could suffer or crumble.

One of the most significant problems facing Floridians and employers is a lack of affordable housing, Simmons said, pointing back to the Live Local Act as a factor unique to Florida, certain to benefit the region.

Its critics tend to be defenders of traditional comprehensive land use plans.

But they may not fully understand, he suggests: “A big reason we don’t have enough multi-family housing is, it costs so much to deliver a unit.

“40% of the costs of delivering a unit is attributable to regulatory requirements. So Live Local takes a great bite out of that. It allows multi-family in zoning categories that didn’t exist before — in densities. And it affords tax relief.”

So whatever else happens in the next year or two, he says, “Live local will become a huge game changer.” ¦

Note: Florida Weekly, with NBC2 and the Business Observer, is a sponsor of Market Trends.